FSD Knowledge Series

Investment Banking 101

Key speakers and panelists were
1. Ermias Eshetu, CEO at FSD Ethiopia.
2. Dr. Brook Taye – Director General of Ethiopian capital market authority.
3. Craig Coben, Former Vice Chairman and Global Head of Equity at the Bank of America Merrill
Lynch.
4. H.E Ato Fikadu Digafe – Vice governor and Chief economist of NBE.
5. Isaac Otolo, Partner, Head of Transaction Advisory for Eastern Africa, PwC Kenya
Dr. Biruk Taye has explained what the Ethiopian capital market authority doing in paving the
way for establishing efficient capital market in Ethiopia. The main task that has been outlined is
that the regulatory framework including licensing requirements for investment banking and
other players in the capital market. He has tipped us that the draft capital requirement for bank
affiliated subsidiary is birr 100 million and for new start up investment bank will be birr 25
million and stressed that there shall be strict separation or ring face or Chinese wall between
investment banking and deposit taking bank.
He also mentioned that to bridge the gap on expertise and knowledge the institution has
partnered with chartered institute for securities and investment (CISI). Further local partnership
agreement is going to be announced on April 29 2023 with AAU school of commerce which is
accredited by CISI to provide training and certifications on the topic on behalf of the company.
The next presenter Craig Coben has discussed on the following issues
Investment banking activities include
 Merger and Acquisitions advisory
 Sales and trading of equities and RICC
 Research and data analytics
 Asset Management
 Prime brokerage and
 Custody and clearing
Types of Banks

 Retail banks – small deposit and loan in a local market

 Commercial Banks – financing large projects and international trade
 Investment Banks and
 Private Banks – managing High net worth people (HNP) finances
 Investment Banking Landscape

M and A advisory ECM and DCM (Equity and Debt capital market) sales and trading
research and investment management

Investment banks come in different sizes

“Boutique” Middle Market Bulge Bracket

As the size of the banks increase the type of activities they provide and the level of business
sophistication also increases from right to left in the above landscape

Values of an Investment banker

 Expertise and experience

 Access to capital and market intelligence
 Relationship and networks
 Innovative solution and strategies
 Guidance and advice

Emerging markets rewards and risks of IB

Rewards

 consists of 80% of the world population

 faster economic growth
 favorable demographic for business
 greater investment opportunities
 diversification

Risks

o currency volatility and convertibility

o political instability
o infrastructure problem
o limited market liquidity and investment opportunities

Some key questions to be addressed are

 How effectively can banks collect savings and channel the same in to investment?
 How strong are domestic legal and financial institutions? How stable is the macro economy? and
 How consistent has corporate performance have been? Privatization and availability of active
market shall be checked.
 How effective corporate governance framework have we made in place?
 In conclusion

 IB has crucial role

 IB provides valuable service to clients and stakeholders
 IB has opportunities for professionals and investors
 Emergent markets present unique challenge and opportunity for IB

Issues rose during Q & A

Why do we need the ring fence/the Chinese wall?

The main reason that we need the ring fence is that in commercial banking the central bank protects the
saving depositors not the investors. The investors are taking risks to get high return on investments
while depositors put their money at low cost with minimal or no risk.

The next presenter was Mr Isaac Otolo

He has shared his experience as transaction advisory and the overall capital market situation in east
Africa in general and Kenya in particular. He has mentioned that how IB can take off in Ethiopia

Privatization shall take place to drive the IPO market, corporate bonds, and municipal bonds, local and
foreign participation, build balance sheet and robust facilitating regulation

The availability of active market participation is very important and one of the most debatable issues in
emerging markets is the issue of valuation for existing companies to be listed as well as in determining
initial IPO values.

The next session was a panel discussion with having all together while Ato ermias have been the
moderator the main issues raised have been

 Financial market can be started with debt financing

 The Ethiopian capital market will be opened next year
 10% of Ethio-telecom will be open for public investment in the near future
 It will be a shame for existing commercial banks if the first license for investment banking goes
to foreign investors or else. To realize these banks should prepare themselves in both expertise
and experience from different exposures.
 Initially compliance based regulations will be in place rather than risk based regulatory
framework.
 Corporate governance in the IB sector is also very important and banks shall consider draft
requirements and prepare themselves
 The two most important issues to addressed shall be developing the professional expertise and
creating enabling environment for availability of active trade markets